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Editor: Paul L. Caron
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Friday, March 21, 2014

The IRS Scandal, Day 316

Thursday, March 20, 2014

The IRS Scandal, Day 315

Wednesday, March 19, 2014

Senior IRS Lawyer Charges Chief Counsel's New York Office With Waste and Abuse

Tax Analysys Logo (2013)David Cay Johnston (Syracuse), Attorney Details Mismanagement in IRS Chief Counsel's New York Offices, 2014 TNT 53-1 (Mar. 19, 2014):

A veteran IRS lawyer opened a window on the secretive operations of one of the biggest IRS field offices March 18, telling 10 senators in a letter that the Office of Chief Counsel ignores serious problems of waste and employee abuse in two New York offices.

Jane Kim, a 10-year veteran chief counsel attorney for the Small Business/Self-Employed Division, wrote that "a sustained pattern of abuse" by chief counsel's supervising lawyers in Manhattan and Long Island, has led to "gross waste of government resources, gross mismanagement, violation of labor laws, and active abuse and retaliation against employees."

The complaint depicts a workplace culture in which favored employees are given light workloads, while their colleagues who pick up the slack face discipline and retaliation if they chafe at unfair treatment. Meanwhile management turns a blind eye to the problems -- when it isn't actively making them worse.

As a result of that negligence, tax cheats often get away without paying, taxpayers needing help go unaided, and good employees suffer more stress in an agency already struggling to deal with budget cuts and public scorn. ...

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March 19, 2014 in IRS News, Tax, Tax Analysts | Permalink | Comments (3)

Death of Former IRS Commissioner Randolph Thrower; Was Fired for Refusing President's Request to Audit His Enemies

ThrowerNew York Times, Randolph W. Thrower Dies at 100; Ran IRS Under Nixon:

Randolph W. Thrower, a Republican lawyer who headed the IRS under President Richard M. Nixon from 1969 to 1971 before losing his job for resisting White House efforts to punish its enemies through tax audits, died March 8 at his home in Atlanta. He was 100. ...

The end came in January 1971, after Mr. Thrower requested a meeting with the president, hoping to warn him personally about the pressure White House staff members had been placing on the IRS to audit the tax returns of certain individuals. Beginning with antiwar leaders and civil rights figures, the list had grown to include journalists and members of Congress, among them every Democratic senator up for re-election in 1970, Mr. Thrower told investigators years later. He was certain the president was unaware of this and would agree that “any suggestion of the introduction of political influence into the IRS” could damage his presidency, he said.

Mr. Thrower received two responses. The first was a memo from the president’s appointments secretary saying a meeting would not be possible; the second was a phone call from John D. Ehrlichman, the president’s domestic affairs adviser, telling him he was fired.

He agreed to stay on until a replacement could be found, did not voice his concerns publicly about the administration’s growing appetite for prosecuting its putative enemies, and never disputed the White House explanation for his departure — that he had resigned “for personal reasons.”

In White House tapes and memos released in later years, Nixon described the situation differently. “May I simply reiterate for the record that I wish Randolph Thrower, commissioner of the Internal Revenue Service, removed at the earliest feasible opportunity,” he wrote on Jan. 21, 1971, five days before the White House announced that Mr. Thrower was stepping down.

That May, as the administration continued to look for a successor to Mr. Thrower, Nixon made clear what kind of IRS commissioner he wanted. “I want to be sure he is a ruthless son of a bitch,” he was recorded as saying, “that he will do what he is told, that every income tax return I want to see I see” and “that he will go after our enemies and not go after our friends.”

Marietta Daily Journal, Thrower Set Example Refusing White House Bid to Abuse IRS Power:

Randolph Thrower, who died last week at age 100, had the rare courage to resist a sitting U.S. president, at the cost of his job.

Thrower was a topflight Atlanta lawyer with Sutherland, Asbill & Brennan, former FBI agent and Marine Corps veteran that Richard Nixon appointed commissioner of the IRS in 1969. For two years, Thrower did his job as fairly as he knew how — among other things — refusing tax-exempt status to private schools that practiced racial discrimination.

Then came the acid test. The Nixon White House wanted to use the IRS to go after its “enemies list” by auditing political opponents and tax-exempt organizations — a la the IRS under the Obama administration more recently targeting tea party and other conservative groups by denying or delaying tax exempt status.

Thrower’s response: “Sure, we’ll audit them — just like everyone else when their names come up through the regular audit selection process.”

March 19, 2014 in IRS News, Tax | Permalink | Comments (9)

IRS Worker Took Home Confidential Data on 20,000 Employees

IRS Statement on Data Security Employee Issue:

Flash DriveThe IRS informed employees today of a data security issue that has recently been discovered. The information at issue, which we presently believe dates back to 2007 or earlier, included IRS employee-related information and not general taxpayer information or records. The incident stems from an employee's use of an unencrypted thumb drive and does not involve a third-party breach of any of our systems. This was not a problem with our network or systems, but rather an isolated instance. We are working cooperatively with TIGTA, as it continues its review of this matter and will take appropriate action.

At this point, we have no direct evidence to indicate this personal information has been used for identity theft or other inappropriate uses. The IRS strongly believes this situation could not occur in today’s environment, because starting in 2008 we added automatic encryption for any external portable devices attached to our systems.

March 19, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 314

Tuesday, March 18, 2014

The IRS Scandal, Day 313

Monday, March 17, 2014

TIGTA: The IRS Does Not Follow Procedures in 48% of Taxpayer Bankruptcy Cases

TIGTA The Treasury Inspector General for Tax Administration has released Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed (2014-40-013):

Impact on Taxpayers
The bankruptcy automatic stay provision prohibits the IRS from taking certain collection actions against a debtor (taxpayer) as soon as it learns, or is notified by a U.S. bankruptcy court, that a bankruptcy petition has been filed. Similarly, the debtor may be granted a discharge, which remains after the case is closed and is a permanent injunction order prohibiting the IRS from taking any form of collection action against the debtor personally with respect to discharged debts. If the IRS does not observe the automatic stay or the discharge injunction, taxpayers’ rights could potentially be violated and the IRS could be sued for damages.

Why TIGTA Did the Audit
In Fiscal Year 2012, IRS data showed that the Field Insolvency function received 306,920 bankruptcy cases on taxpayers owing approximately $2.5 billion in taxes, penalties, and interest. This audit was initiated to determine whether the function has effective controls and procedures in place to take appropriate and timely actions to protect the Government’s interest and taxpayers’ rights during bankruptcy proceedings.

What TIGTA Found
Field Insolvency function specialists frequently did not follow required procedures when working bankruptcy cases. Although TIGTA did not identify any violations of taxpayers’ rights and/or failure to protect the Government’s interest during this review, there is a higher risk that this could occur when procedures are not followed.

TIGTA’s review of three random samples of closed bankruptcy cases showed that specialists did not always follow established procedures in 17 (57 percent) of 30 Chapter 7 cases, 15 (50 percent) of 30 Chapter 11 cases, and 13 (43 percent) of 30 Chapter 13 cases reviewed. Specifically, specialists did not always timely or properly conduct the initial case analysis, follow up on scheduled case actions within a reasonable time, or timely or properly close cases.

TIGTA also reviewed a random sample of 30 bankruptcy cases with Automated Proof of Claim flag conditions (errors that need to be resolved by a specialist). Specialists did not timely or properly resolve the flag conditions in 12 (40 percent) of 30 cases.

March 17, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 312

IRS Logo 2Lily Kahng (Seattle), The IRS Tea Party Controversy and Administrative Discretion, 99 Cornell L. Rev. Online 41 (2013):

The IRS Tea Party controversy erupted when the Treasury Inspector General issued a report finding that IRS employees in the Cincinnati office had targeted certain organizations’ applications for tax exempt status for heightened scrutiny, in particular singling out groups with “Tea Party” or “Patriot” in their names. A media firestorm ensued, with fevered speculation about a hidden political agenda extending all the way to the White House. A complete picture of the controversy has yet to emerge, but as of the writing of this Essay, it appears that the worst suspicions about political bias are unfounded. Nonetheless, the IRS has suffered reputational damage that undermines its legitimacy and impairs its ability to perform its central function.

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March 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, March 16, 2014

The IRS Scandal, Day 311

IRS Logo 2Tax Analysts Blog:  It’s Not Just About Lois Lerner, by Christopher Bergin:

I have written a lot here about the IRS and the issues surrounding the way it treated certain groups applying for tax-exempt status as social welfare organizations. It’s certainly a hot issue – it even made its way into The Economist this week. And wherever you stand on Lois Lerner, I think we can all agree that she is a classic lightning rod. The whole debate about what happened is charged with political intrigue, abuse of power, and Washington melodrama. It’s juicy stuff. I’ve enjoyed the discussion that’s been generated here.

But we need to remind ourselves that there is a lot more potential abuse going on at the IRS than what’s been associated with Lois Lerner. Here are a few examples. I talk to many practitioners who (a) don’t want to be identified, probably for fear of retaliation, and (b) question the independence of the IRS Appeals Office. That is a big problem.

In 2012 a high-ranking IRS executive said in a speech that she believes the government has a higher duty than that of a private litigant. “The government,” the executive said, “represented by the tax administrator, should not pursue a particular outcome and then look for interpretations in the law that support it. The tax administrator should do nothing more or less than find the law and follow it, regardless of outcome. The separation of powers, a bedrock principle of our Constitution, demands it.”

I have a few questions. How many private tax litigators believe that’s actually how the IRS operates? If this noble statement is taken seriously by others in the IRS, why did Tax Analysts have to go to court to get training materials? And why is the IRS being questioned so strongly by Congress on its belief – or, more accurately, the lack thereof -- in the bedrock principle of the separation of powers?

Taxpayer service at the IRS has become a non-priority, if it’s even considered anymore. National Taxpayer Advocate Nina Olson, who is called the taxpayers’ voice at the IRS, has said that the agency is becoming dehumanized, caring more about numbers than taxpayers. In her annual report to Congress in January, she urged the IRS to implement a comprehensive, principle-based taxpayer bill of rights. ...

I’m sorry to say that there is more to worry about regarding what’s going on at the IRS – one of the most powerful agencies and one that affects all of us – than Lois Lerner. ...

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March 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Saturday, March 15, 2014

The IRS Scandal, Day 310

Friday, March 14, 2014

The IRS Scandal, Day 309

IRS Logo 2Leslie Book (Villanova), Congressional Testimony Highlights IRS Challenges:

One note on the [IRS] scandal. It has been covered (some might say smothered) elsewhere. We have decided to avoid most coverage of the issue, in part because others are hitting it hard and it does not directly impact many aspects of tax procedure. I highlight it here because it is the major issue of the day when it comes to how Congress and the public view the IRS, and as I discuss later, it does also dovetail with some earlier posts we have on IRS rulemaking. As the scandal plays out, it will continue to have a major impact on tax administration.

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March 14, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, March 13, 2014

The IRS Scandal, Day 308

IRS Logo 2Wall Street Journal:  Lois Lerner's IRS 'Immunity Deal':

Rep. Jim Jordan, chairman of a House Oversight subcommittee that has been investigating the Internal Revenue Service's targeting of conservative groups, says that "we need a special prosecutor." And he has a candidate in mind. ...

Mr. Jordan says that Ms. Lerner should tell the American people what she knows about IRS harassment of the President's philosophical opponents because, thanks to explicit signals from the administration, she must already know she is "not going to jail."

The Ohio Republican adds that Ms. Lerner can take further comfort from the fact that Justice assigned the case to government attorney Barbara Bosserman, who has donated more than $5,000 to Barack Obama's campaigns. ... Mr. Jordan has asked Department of Justice Inspector General Michael Horowitz to determine how this case landed with Ms. Bosserman, a civil-rights attorney, instead of a prosecutor in the department's public integrity section.

Mr. Jordan says he'd like to get a transcript of Justice's Lerner interview but doubts the department will turn it over since the executive branch still hasn't complied with a Congressional subpoena to turn over all of Ms. Lerner's emails.

While Mr. Jordan is not endorsing a revival of the flawed and expired independent counsel statute, he says "we need a special prosecutor." And he believes that Mr. Horowitz, an Obama appointee, could conduct a serious inquiry. "I would trust Horowitz," he adds.

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March 13, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Wednesday, March 12, 2014

The IRS Scandal, Day 307

IRS Logo 2Providence Journal:  Can Congress Compel IRS Chief to Testify?, by Robert Romano (Citizens for Limited Government):

A lot has happened since former Internal Revenue Service Exempt Organizations head Lois Lerner refused to testify in May 2013 about the agency’s targeting of the Tea Party and other 501(c)4 organizations, asserting her Fifth Amendment right against self-incrimination.

For starters, it turns out the scandal goes much higher than was originally stated.

Holly Paz, managing director at the D.C.-based IRS technical office, has testified that, in February 2010, “a case was identified where there was potential for political campaign activity, and that was when they reached out to Washington and the case was transferred to Washington.”

Paz said she then forwarded it to agency tax specialist and lawyer Carter Hull, who developed many of the invasive follow-up questions that attempted to probe just how political groups intended to be.

Michael Seto, the head of Hull’s unit, said it was Lerner who ordered that the Tea Party applications be subjected to special scrutiny.

In addition, Hull said that when he met with Lerner’s senior adviser, he was told that his recommendations on the Tea Party applications would be first reviewed by the IRS general counsel William Wilkins, only one of two political appointments in the agency besides the commissioner.

Hull’s supervisor Ronald Shoemaker told investigators that the counsel’s office wanted information about the applicants’ political activities leading up to the 2010 election.

So, what began as a scandal with supposedly “low-level” employees in Cincinnati actually goes all the way to Washington, with the then-head of Exempt Organizations and the agency’s general counsel not only aware of the targeting but coordinating its decision-making process.

And yet, the targeting might not have been criminal after all, or so says the Department of Justice, which according to The Wall Street Journal is not planning on filing charges.

Giving the benefit of the doubt — that there is nothing in the U.S. Code that prohibits the sort of targeting that took place, even though one of the articles of impeachment against Richard Nixon was “to cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigation to be initiated or conducted in a discriminatory manner” — then why did Lois Lerner even bother pleading the Fifth back in May and again this week?

If there was no criminal activity, in principle, then Lerner cannot incriminate herself. Lerner said it herself before the House Oversight Committee: “I have not broken any laws.” ...

Lerner is running out of excuses. So maybe she just needs to come clean, fess up and be done with it. Or be found in contempt of Congress and face even more consequences.

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March 12, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Tuesday, March 11, 2014

House Releases Report on Lois Lerner's Role in the IRS Scandal

Lerner-ReportThe House Committee on Oversight and Government Reform this morning released a 141-page staff report, Lois Lerner's Involement in the IRS Targeting of Tax-Exempt Organizations:

  • Tea Party “itching for a Constitutional challenge:” Lerner and her colleagues, after being under public pressure from President Obama and other Democrats, engaged in an e-mail exchange about how they could showcase their scrutiny of a Tea Party applicant for public disclosure, despite rules protecting the secrecy of unapproved applications.  The conversation turned to the possibility of a court case – if a Tea Party applicant would challenge the IRS ruling.  On this, Ms. Lerner opined, Tea Party groups would litigate because they are “itching for a Constitutional challenge.” – p. 41
  • Lerner discusses political scrutiny that isn’t “per se political:” In one e-mail exchange that began with a discussion of an article noting, “organizations woven by the fabulously rich and hugely influential Koch brothers,” Lerner told colleagues, “we do need a c4 project next year.”  While she initially says, “my object is not to look for political activity,” later in the exchange she acknowledges that it will examine political activity. “We need to be cautious so it isn’t a per se political project.  More a c4 project that will look at levels of lobbying and pol. Activity along with exempt activity.” – p. 17
  • Lerner broke IRS rules by mishandling taxpayer information:  While Lerner told Congress under oath, “I have not violated any IRS rules or regulations,” e-mails show Lerner handled protected 6103 taxpayer information in her nonofficial e-mail account. In a November 2013 letter from Daniel Werfel, Werfel notes, “We do not permit IRS officials to send taxpayer information to their personal email addresses. An IRS employee should not send taxpayer information to his or her personal email address in any form, including redacted.” – p. 33
  • Lerner planned to retire in October all along: While House Democrats have pushed that Lerner was forced out by the IRS as a result of the TIGTA report; new e-mails indicate that Lerner had planned an October retirement long before TIGTA released its report.  Her paid leave amounted to a paid vacation preceding her retirement – it does not appear that the IRS penalized her in any way for her conduct. – p.  40-41
  • Despite knowing about improper scrutiny, Lerner had IRS blame victims: An IRS document bearing Lerner’s signature shows that in March 2012, despite knowing about improper scrutiny at that time, Lerner reviewed and signed off on a response to Congress that blamed applicants for heightened scrutiny.  “[T]he IRS contacts the organization and solicits additional information when the organization does not provide sufficient information in response to the questions on the Form 1024 or if issues are raised by the application …. The revenue agent uses sound reasoning based on tax law training and his or her experience to review the application and identify the additional information needed to make a proper determination of the organization’s exempt status.” – p. 36
  • Concern Citizens United hurting Democrats:  Lerner believed the Executive Branch needed to take steps to undermine the Supreme Court’s Citizens United decision.  A senior advisor to Lerner e-mailed her an article about allegations that unknown conservative donors were influencing U.S. Senate races.  The article explained how outside money was making it increasingly difficult for Democrats to remain in the majority in the Senate.  Lerner replied:  “Perhaps the FEC will save the day.” – p. 21
  • Citizens United created pressure for IRS to “fix the problem”:  According to Lerner: “The Supreme Court dealt a huge blow, overturning a 100-year old precedent that basically corporations couldn’t give directly to political campaigns.  And everyone is up in arms because they don’t like it.  The Federal Election Commission can’t do anything about it. They want the IRS to fix the problem.” – p. 20
  • “Multi-Tier Review”:  Lerner personally directed that Tea Party cases go through a “multi-tier review.” An IRS employee testified that Lerner “sent [him an] e-mail saying that when these cases need to go through multi-tier review and they will eventually have to go to [Judy Kindell, Lerner’s senior technical advisor] and the Chief Counsel’s office.”  A D.C. IRS employee said this level of scrutiny had no precedent. – p. 24-25
  • Head of the IRS Cincinnati office’s testimony refutes Lois Lerner and President Obama’s O’Reilly interview assertion that this was all about a “local office”: “[Y]es, there were mistakes made by folks in Cincinnati as well [as] D.C. but the D.C. office is the one who delayed the processing of the cases.” – p. 44

Press and blogosphere coverage:

March 11, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (7)

The IRS Scandal, Day 306

SilenceSan Francisco Chronicle:  The Silence of the Tax Lamb, by Debra Saunders:

Former IRS official Lois Lerner invoked her Fifth Amendment right on Wednesday not to incriminate herself when she testified before the House Oversight and Government Reform Committee hearing on the IRS targeting of Tea Party groups.

Oddly, the news media and Democratic leaders don't think it's a big deal when a federal official - Lerner was the head of the IRS tax-exempt unit when she first invoked the Fifth last May - won't answer questions about her actions as a federal official. ...

Just what was Lerner doing on the taxpayer dime that she doesn't want to share?

Lerner's silence is especially unsettling given that her attorney, William Taylor III, told reporters that Lerner had given a full interview to the Department of Justice with no grant of immunity. Lerner's lawyers, he said, have confidence that prosecutors, unlike Issa, are open-minded. ...

"It does strike me as a little odd," Rutgers law Professor George Thomas III told the Wall Street Journal. "One explanation is the one given by her lawyer. The other, darker explanation is that she and her lawyer think that DOJ is not interested in a serious investigation of the IRS treatment of these tax-exempt groups."

Could it be that Lerner's lawyers do not fear the often-terrifying Justice Department precisely because President Obama already signaled there is no cause for concern because the IRS story is a "phony scandal"?

Similarly, the president signaled his disdain for conservative nonprofits during the 2010 and 2012 election seasons. Lo and behold, the IRS started to put conservative tax-exempt organizations on the slow track and under a microscope.

Last year, Lerner admitted that after the IRS saw an uptick in applications for social-welfare organizations in 2010, staff began screening for groups that used words like "Tea Party" or "Patriots." She even apologized. "That was wrong, that was absolutely incorrect, insensitive and inappropriate - that's not how we go about selecting cases for further review," Lerner said.

She also claimed that IRS staffers did not target Tea Party patriot types "because of any political bias. They did it because they were working together. This was a streamlined way for them to refer to the cases."

That is, it was convenient.

I do not believe that claim. I don't know many liberals who actually believe it either. I do believe that if the Bush administration IRS targeted social-welfare groups that used terms like "antiwar" and "torture," the left would want to investigate. They'd want to know if the IRS policy came from the White House. And they wouldn't give a pass to officials who took the Fifth.

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March 11, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Monday, March 10, 2014

The IRS Scandal, Day 305

Sunday, March 9, 2014

The IRS Scandal, Day 304

IRS Logo 2Washington Post op-ed:  The IRS’s Behavior Taxes Credulity, by George F. Will:

What’s been said of confession — that it is good for one’s soul but bad for one’s reputation — can also be true of testifying to Congress, so Lois Lerner has chosen to stay silent. Hers, however, is an eloquent silence.

The most intrusive and potentially most punitive federal agency has been politicized; the IRS has become an appendage of Barack Obama’s party. Furthermore, congruent with exhortations from some congressional Democrats, it is intensifying its efforts to suffocate groups critical of progressives, by delaying what once was the swift, routine granting of tax-exempt status.

So, the IRS, far from repenting of its abusive behavior, is trying to codify the abuses. It hopes to nullify with new rules the existing legal right of 501(c)(4) groups, many of which are conservative, to participate in politics. The proposed rules have drawn more than 140,000 comments, most of them complaints, some from liberals wary of IRS attempts to broadly define “candidate-related political activity” and to narrow the permissible amount of this.

Lerner is, so far, the face of this use of government to punish political adversaries. She knows what her IRS unit did and how it intersects with the law, and for a second time she has exercised her constitutional right to remain silent rather than risk self-incrimination. The public has a right to make reasonable inferences from her behavior.

And from Obama’s. After calling the IRS behavior “outrageous,” he now says there is not a “smidgen” of evidence of anything to be outraged about. He knows this even though the supposed investigation of the IRS behavior has not been completed, or perhaps even begun. The person he chose to investigate his administration is an administration employee and a generous donor to his campaigns.

Obama breezily says there was nothing more sinister than “boneheaded decisions” by wayward and anonymous IRS underlings. Certainly boneheadedness explains much about this administration. Still, does he consider it interesting that the consequences of IRS boneheadedness were not randomly distributed but thwarted conservatives? ...

There almost certainly are people, above her and beyond the IRS, who initiated or approved the IRS’s punitive targeting of conservative groups and who hope Lerner’s history of aggressive partisanship will cause investigators to conclude that she is as high as responsibility for the targeting rises. Those people should hire criminal defense attorneys.

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March 9, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, March 8, 2014

The IRS Scandal, Day 303

IRS Logo 2Tax Analysts Blog:  More Arrogance and Secrecy From the IRS, by Christopher Bergin:

A couple of days ago, the House Oversight and Government Reform Committee tried to hold a hearing on the IRS exemption scandal. I say try because it turned into a circus. Most of the press focused on the unprofessional and immature behavior of the committee’s top two members: Chair Darrell E. Issa, R-Calif., and ranking minority member Elijah E. Cummings, D-Md. The most significant part was largely ignored. ...

Lois Lerner, who is at the center of the controversy and the one who started all this by announcing at a meeting of the ABA Section of Taxation last May that the IRS had mistreated some conservative organizations, refused once again to testify. Somehow this thing has to come to a head.

I am not an IRS basher or hater. As I have said countless times, taking the heat for it every time (and that’s fair game, by the way), I know many fine people who have worked or work for that agency. But we are in litigation with the IRS in an attempt to get information on how it trained people to handle applications from groups seeking to be recognized as social welfare organizations. That litigation has been an incredibly frustrating process.

I don’t know if these apparent political decisions were made by Lerner or others either inside or outside the IRS, because trying to get information out of that agency is like trying to get sweat out of a rock. Over the years, it has fought the silliest things. I’m only half kidding when I say that if you asked the IRS to see the kind of staplers it’s using, it would tell you it doesn’t have staplers.

The IRS will go to great lengths not to be scrutinized. And that breeds an atmosphere of no accountability -- which leads to arrogance. We have seen that arrogance consistently throughout the congressional investigations of several IRS officials. And where will it lead us? Not to a good place, especially for those of us getting ready to file our yearly income tax returns. A tax collector that treats its “customers” as guilty until proven innocent is a tax collector out of control. That is precisely what the national taxpayer advocate has been warning about. If IRS officials don’t believe they are accountable to Congress, the rest of us don’t stand a chance. ...

Maybe it’s time to lay siege to Fortress Secrecy.

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March 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Friday, March 7, 2014

The IRS Scandal, Day 302

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March 7, 2014 in IRS News, IRS Scandal, News, Tax | Permalink | Comments (3)

Thursday, March 6, 2014

IRS Tax Tips for Same-Sex Couples

March 6, 2014 in IRS News, Tax | Permalink | Comments (0)

IRS Low Income Taxpayer Clinic Program Report

TAThe IRS’s Low Income Taxpayer Clinic (LITC) Program Office issued its second annual program report on how LITCs assist thousands of low income taxpayers nationwide with pro bono representation, education, and advocacy services.

The LITCs provide free or low-cost assistance to low income taxpayers who have a tax dispute with the IRS, such as an audit or collection matter, and conduct education and outreach to taxpayers who speak English as a second language (ESL).  LITCs also advocate for low income taxpayers and highlight the need to change administrative practices and procedures that cause their clients economic hardship.

“The LITCs help taxpayers achieve favorable outcomes in cases, access benefits administered through the tax system, and resolve tax debts, levies, and liens.  During 2012, LITCs helped taxpayers secure more than $5.8 million in tax refunds and eliminate nearly $35.5 million in tax liabilities, penalties and interest,” said William P. Nelson, LITC Program Director.  The report provides an overview and history of the LITC Program, discusses the type of work the LITCs perform, and explains how their work helps ensure the fairness and integrity of the tax system. 

The LITC program has a three-prong mission to represent, educate, and advocate for taxpayers.  Included in the report are several stories that provide examples of how LITCs have helped taxpayers.  One taxpayer was facing a levy action that put her in danger of losing her home but the LITC was able to negotiate an offer in compromise to eliminate the debt and keep the taxpayer in her home.  LITCs employ staff but also rely on the contributions of volunteers.  In 2012, taxpayers benefited from over 59,000 volunteer hours provided by nearly 2,300 LITC volunteers.

The LITC program awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain a low income taxpayer clinic.  The grant program is administered by the Office of the Taxpayer Advocate at the IRS, led by the National Taxpayer Advocate.  Although LITCs receive partial funding from the IRS, LITCs, their employees and volunteers operate independently from the IRS.

LITC

March 6, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 301

New York Post editorial:  What is Lois Hiding?:

Where Lois Lerner goes, drama follows.

On Wednesday, the former IRS officer again invoked the Fifth before the House Oversight Committee. That precipitated a heated exchange between the committee’s Republican chairman, Darrell Issa, and Democratic ranking member Elijah Cummings, who called the hearings “un-American.” And that spat has become the story.

No doubt that is exactly what Cummings had in mind. Because it distracts attention from the substance of the hearings — and from the questions raised by e-mails and public remarks Lois Lerner wrote, received or made when she was IRS Director of Tax Exempt Organizations

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March 6, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, March 5, 2014

The IRS Scandal, Day 300

Tuesday, March 4, 2014

The IRS Scandal, Day 299

Monday, March 3, 2014

Galle & Tobin: Comments on the Proposed § 501(c)(4) Regulations

Brian D. Galle (Boston College) & Donald B. Tobin (Ohio State), Comments on Guidance for Tax-Exempt Social Welfare Organizations on Candidate-Related Political Activities:

The Notice is a good first step. It creates bright-line standards that are easy to apply and that will eliminate much of the gray area regarding permissible political activity. Clearer lines will reduce the discretion on the part of the IRS. By decreasing the IRS’s discretion, the regulation will reduce the opportunity for the IRS to be used as a political tool in an Administration’s tool box.

However, the Notice does not go far enough. Congress has established a regulatory regime that has as its central purpose the disclosure of any significant campaign contributions by individuals or firms. In recent years many organizations have exploited the confidentiality rules of § 501(c)(4) to evade that regime, to the detriment not only of U.S. political discourse but also the non-profit sector. The Final Rule should ensure that groups with significant partisan political activity cannot obtain exemption under § 501(c)(4), or indeed under any parallel provision of § 501.

We believe, however, that groups carrying out "substantial" electioneering activities should generally be eligible for exemption under § 527, and that the IRS should make that clear in the Final Rule. The main consequence of any ruling denying § 501(c)(4) status based on the political activity of the organization, therefore, would simply be to require the disclosure of an organization’s donors, and to ensure that the organization’s political expenditures are disclosed contemporaneously with the election they seek to influence.

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March 3, 2014 in IRS News, IRS Scandal, Scholarship, Tax | Permalink | Comments (2)

The IRS Scandal, Day 298

Sunday, March 2, 2014

The IRS Scandal, Day 297

Saturday, March 1, 2014

The IRS Scandal, Day 296

The Colbert Report
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March 1, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Friday, February 28, 2014

The IRS Scandal, Day 295

IRS Logo 2Wall Street Journal: All the President's IRS Agents, by Kimberley Strassel:

Few presidents understand the power of speech better than Barack Obama, and even fewer the power of denying it to others. That's the context for understanding the White House's unprecedented co-option of the Internal Revenue Service to implement a political campaign to shut up its critics and its opponents.

Perhaps the biggest fiction of this past year was that the IRS's targeting of conservative groups has been confronted, addressed and fixed. The opposite is true. The White House has used the scandal as an excuse to expand and formalize the abuse. ...

Politics is also guiding the Justice Department's alleged investigation of IRS abuses. The Oversight Committee held a separate hearing on Wednesday, at which legal experts laid out the ludicrously partisan nature of Justice's probe—including the choice of Barbara Bosserman, an Obama donor in the liberal civil-rights division, to handle it.

Ms. Mitchell, the attorney, was due to testify before the Oversight Committee Feb. 6. On Feb. 4, she filed her written testimony, which explained that nine months after this scandal broke, neither she nor her clients had yet to receive a phone call from the FBI or Justice. Three hours after filing, she told me, a Justice representative called, wanting to check on this targeting thing.

And now we have new IRS regulations, which will formalize the crackdown on 501(c)(4) political speech. The IRS has no business here—there is a bipartisan Federal Election Commission to enforce laws about political speech. But the FEC can't be controlled by the White House, and Democrats have been unable to pass new speech restrictions through Congress.

Democrats are instead fully vested now in using the IRS to shut down criticism by outside groups of ObamaCare, overspending or (ironically) the IRS targeting. Even liberal groups are howling about the White House's use of the IRS to silence political speech, and the House on Wednesday passed a bill to delay the regulations. The White House's response? A veto threat.

At a Senate Judiciary Committee markup Thursday morning, Texas's Ted Cruz offered an amendment to prohibit IRS employees from deliberately targeting individuals or groups based on political views. It was unanimously rejected by every member of the Democratic majority.

The IRS targeting was shocking because Americans expect that agency to be free of politics. In the age of Obama, that era is over. Only when Washington recognizes the IRS for the political tool it has become can it start to fix the problem.

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February 28, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Thursday, February 27, 2014

The IRS Scandal, Day 294

IRS Logo 2Wall Street Journal op-ed:  Connecting the Dots in the IRS Scandal, by Bradley A. Smith (Capital):

The 'smoking gun' in the targeting of conservative groups has been hiding in plain sight.

The mainstream press has justified its lack of coverage over the Internal Revenue Service targeting of conservative groups because there's been no "smoking gun" tying President Obama to the scandal. This betrays a remarkable, if not willful, failure to understand abuse of power. The political pressure on the IRS to delay or deny tax-exempt status for conservative groups has been obvious to anyone who cares to open his eyes. It did not come from a direct order from the White House, but it didn't have to. ...

In 1170, King Henry II is said to have cried out, on hearing of the latest actions of the Archbishop of Canterbury, "Will no one rid me of this turbulent priest?" Four knights then murdered the archbishop. Many in the U.S. media still willfully refuse to see anything connecting the murder of the archbishop to any actions or abuse of power by the king.

New York Times op-ed:  Why the I.R.S. Scandal Won't Go Away, by Thomas D. Edsall:

Congressional Republicans have demonstrated exceptional persistence and determination in their efforts to keep this nine-month-old controversy alive, convinced that it is a partisan goldmine. Since last May, the Ways and Means and Government Oversight Committees have, together, held at least a dozen separate hearings on the issue of I.R.S. targeting of conservative groups.

Meanwhile, the Exempt Organization Division has been paralyzed. Employees have been forced to deal not only with House investigations, but also with an investigation by the Senate Finance Committee, another by the Senate Permanent Subcommittee on Investigations, an investigation by the Department of Justice and a civil suit brought by 41 of the targeted Tea Party groups.

“It’s been a huge distraction for the agency,” Marcus Owens, who was the director of the division from 1990 to 2000, told me. Owens, who is currently a tax lawyer in private practice, added: “They have gone into a bunker or a zone of silence. The events have caused a lot of tax administration to grind to a halt.”

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February 27, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Wednesday, February 26, 2014

The IRS Scandal, Day 293

IRS Logo 2Wall Street Journal editorial:  Liberals vs. the IRS: Even the Left Doesn't Want the Tax Man Regulating Speech:

The media have remained quiet about the IRS targeting of conservative nonprofit groups and even quieter about the proposed IRS rule to restrict their political speech. Maybe our colleagues will snap out of their slumber now that the objections are coming from liberals.

The comment period for the new IRS political-speech rule is open until Feb. 27, but already there have been more than 69,000 comments, the majority negative. That's far more than the normal reaction to a new regulation—only 7,353 comments on the Keystone XL pipeline, according to Regulations.gov—and it shows how much anger and concern the rule has generated across the political spectrum. ...

By restricting the ability of 501(c)(4)s to engage in politics, the Administration hopes more groups will have to register as political committees instead of social-welfare groups and thus disclose their donors. The purpose of this disclosure is to set up donors as political targets for boycotts and intimidation so the costs of participating in politics will be too steep.New York Democrat Chuck Schumer recently gave this game away when he urged the IRS and Administration to "redouble" their efforts to crack down on the "tea party elites" who "gained extraordinary influence by being able to funnel millions of dollars into campaigns with ads that distort the truth and attack government."

In other words, Mr. Schumer and the White House want to use the IRS to impose campaign-finance reform. But that's a role Congress has never envisioned for what is supposed to be the nonpartisan tax authority. Congress set up the Federal Election Commission, with three members each from both parties, to enforce campaign-finance regulations so there would be a check on partisan enforcement.

Conservative criticism hasn't stopped the Obama IRS, but maybe liberal unhappiness will. The Treasury Department said earlier this month that the draft rule is merely the "first step in a careful, thoughtful process." It's been thoughtful only in the sense that it is driven by political motives. If the liberals don't want some future Republican IRS to reduce their political speech, they'll continue the clamor until the White House kills this assault on the First Amendment.

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February 26, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Tuesday, February 25, 2014

The IRS Scandal, Day 292

IRS Logo 2PowerLine:  Cleta Chronicles: IRS Scandals, Part 1:

Cleta Mitchell may be the most dangerous woman in America. She is the prominent Washington attorney who represents several clients victimized by the criminal misconduct of the IRS over the past four years. She speaks with authority when she asserts, as she did recently in her testimony before a congressional subcommittee, that the Obama administration is responsible for “lies upon lies” covering up the multifarious, politically inspired wrongdoing of the IRS. Cleta took the lead in the outstanding Heritage Foundation program on the IRS and the Obama administration this past Friday.

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February 25, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Monday, February 24, 2014

The IRS Scandal, Day 291

IRS Logo 2New York Post op-ed:  I Was a Victim of the IRS, by Christine O'Donnell:

On March 9, 2010, around 10 a.m., I announced my plans to run for senate representing Delaware.

Later that same day, my office received a call from a reporter asking about my taxes.

It’s since come out, after a halting and unenthusiastic investigation, that a Delaware Department of Revenue employee named David Smith accessed my records that day at approximately 2 p.m. — out of curiosity, he says.

That these records ended up in the hands of the press is just a coincidence, the IRS claims. ...

Let’s imagine if the situation was reversed. What if, while a Republican was president, the IRS leaked the tax records of Democratic candidates to the press? What would the reaction look like then?

Would journalists be dismissing this as “not a scandal”?

You may not agree with my politics, but is this the kind of precedent Democrats really want to set — that leaking private information is no big deal?

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February 24, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, February 23, 2014

The IRS Scandal, Day 290

IRS Logo 2Heritage Foundation:  Taxing the First Amendment: Using the IRS to Censor Speech? (Feb. 21):

The Internal Revenue Service is being investigated over claims that it denied tax-exempt status under Section 501(c)(4) of the Internal Revenue Code to Tea Party and other conservative organizations because of their political views and beliefs. Lawsuits are pending over the unauthorized disclosure of sensitive donor and tax information by the IRS. On Nov. 29, 2013, the IRS issued a Notice of Proposed Rulemaking that would broadly widen the definition of “candidate-related political activity” for 501(c)(4) nonprofit organizations, restricting the ability of groups like the NRA and the Sierra Club to engage in political advocacy. Does this proposed regulation violate the First Amendment rights of nonprofits and their members? What is the status of the litigation and the investigations being conducted by Congress and the Justice Department? Are the IRS scandal and the current regulatory proposal a coordinated effort to stifle criticism of the government? Two campaign finance experts, including a lawyer representing conservative organizations and a former chairman of the Federal Election Commission, along with two journalists who have extensively covered the IRS scandal, will discuss these issues.

  • Cleta Mitchell (Partner, Foley & Lardner)
  • Bradley A. Smith (Chairman, Center for Competitive Politics)
  • Eliana Johnson (Reporter, National Review)
  • Kimberley Strassel (Editorial Board, Wall Street Journal)

Christian Post:  IRS Scandal Has Obama Fingerprints All Over It, Experts Say:

Experts agreed that the Internal Revenue Service's targeting of conservative, pro-life, and evangelical groups in 2012 ties directly back to President Obama's campaign style before his presidency. "The best way to look at this is as a continuum of a very long and determined political strategy that dates back to 2008 and a man named Barack Obama," Kimberley Strassel, a columnist for The Wall Street Journal, declared at The Heritage Foundation on Friday. Strassel argued that "this is a president and his team of political operatives who have always understood the power of speech, but more importantly, the power of denying it to their political opponents." ... Strassel quoted the House Ways and Means Committee's report about the new IRS rules, saying the committee "has noted it looks very much to them as though this rule was reverse engineered" to attack the same groups the IRS targeted in 2012. "Somebody took a look at all of the organizations that had been targeted prior by the IRS and then drafted these rules to make sure that they could encompass those groups again, but in a formalized fashion."

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February 23, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, February 22, 2014

The IRS Scandal, Day 289

IRS Logo 2New York Post editorial, Many (Un)happy Returns:

For months, IRS officials have stood ­accused of promoting their own ­personal political interests by targeting conservative groups. This week, they’re accused of having promoted their own personal ­financial interests, as well.

Anyone starting to see a pattern here?

Just as Americans get set to file their own tax returns over the next month and a half, a new report from the Treasury Inspector General for Tax Administration says nine out of 31 IRS executives — about 30 percent — improperly claimed “overnight long-term travel” as tax-exempt. ...

American taxpayers must feel like shnooks. Here they labor mightily just to understand the tax code and then pay through the nose to comply with it. Meanwhile, the agency seems to be running amok and abusing the very power it is given — whether politically or financially.

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February 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Friday, February 21, 2014

The IRS Scandal, Day 288

Bloomberg:  Big-Money Politics Groups Get Clarity From IRS They Hate, by Richard Rubin:

Groups that want to spend millions of dollars on political campaigns without disclosing their donors are getting a clear road map on how to do so from the U.S. Internal Revenue Service.

And some of the groups don’t like it one bit.

Republicans criticize the proposed IRS rules as an attack on free speech because they would limit voter guides and candidate forums. The rules also would provide a legal path for groups organized under section 501(c)(4) of the tax code to air campaign ads.

That would give some of the biggest players from the 2012 campaign, including Crossroads Grassroots Policy Strategies, greater certainty to run ads in ways that don’t risk their tax-exempt status going forward. They could run issue-based ads that mention candidates’ names months before an election, and then switch to a direct pitch closer to the vote.

“If I were sitting in the chair of a conservative political operative, I would be rubbing my palms together hoping that these (c)(4) rules would be adopted,” said Greg Colvin, an attorney at Adler & Colvin in San Francisco who specializes in the political activity of nonprofit groups.

That prospect of benefits for big-money political nonprofit groups -- which are mostly Republican-leaning -- runs counter to the message from Republican lawmakers, who call the IRS rules a political maneuver by the Obama administration to restrict groups favoring smaller government.

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February 21, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, February 20, 2014

Taxpayer Support for Extra IRS Funding for Enforcement Drops 11%, to 10-Year Low

IRS OversightThe IRS Oversight Board yesterday released the 2013 Taxpayer Attitude Survey (Feb. 2014):

The Board’s survey found that 59 percent of respondents believe that the IRS should receive extra funding to assist more taxpayers, down eight points since last year’s survey. Only 55 percent said that the IRS should receive more funding to enforce the nation’s tax laws, down seven points from 2012. In addition, only 39 percent of respondents believe that the IRS maintains a proper balance between service and enforcement, down four points from last year’s findings.  

Figures

Figure 9

February 20, 2014 in IRS News | Permalink | Comments (1)

The IRS Scandal, Day 287

IRS Logo 2New York Times editorial:  Change the Rules on Secret Money:

In November, when the Internal Revenue Service finally stirred itself to propose a modest crackdown on the abuse of the tax code by political groups, it was immediately attacked by tax-exempt nonprofit groups on the right. That wasn’t too surprising; secret donations from conservatives to these groups are the principal reason American politics is now dominated by those with huge bank accounts.

But now liberal tax-exempt groups are also raising their voice in protest over the I.R.S.’s plans, afraid that they will be caught in the same crackdown, and will be unable to engage in political activity. The best thing the I.R.S. can do is to ignore both sides and proceed swiftly ahead, making its proposed rules even stronger to squeeze the influence of money out of politics. ...

If anything, the I.R.S. rules, which should be sped up to have some effect on the November elections, ought to be stronger. The same prohibitions against political activity should also apply to business leagues like chambers of commerce, and to unions, both of which are organized under different sections of the tax code that allow concealment of donors. The rules should be far more explicit that no amount of political activity is acceptable for any group that refuses to disclose contributors.

Secret money has become the scourge of the political system and needs to be eliminated regardless of the inconvenience to nonprofit groups, whatever their ideology. Republicans have blocked Congress from dealing with the problem, so now it is up to the I.R.S. to do its job.

New York Sun editorial, Supremacy of the IRS:

Secret money has become the scourge of the political system and needs to be eliminated regardless of the inconvenience to nonprofit groups, whatever their ideology. Republicans have blocked Congress from dealing with the problem, so now it is up to the I.R.S. to do its job.

Those lines are from an editorial in the Times this morning calling for the Internal Revenue Service to start moving against not-for-profit groups that Congress has refused to regulate. They are one of the most astonishing combination of sentences we’ve seen in a while for the schematic way in which they illuminate the dictatorial mindset. Where in the world did the Times, once a paper of liberal progress, get possessed of the notion that the executive branch should do things that Congress decided it didn’t want to authorize it to do?  ...

[E]ventually the American institutions will make it clear that the refusal of the Congress to do something — raise taxes, lower taxes, declare war . . . whatever — doesn’t mean that it’s okay for the Internal Revenue Service to go ahead and do it anyhow.

Dave Camp (Chair, House Ways & Means Committee), Press Release:

Given that this is mostly conservative groups we are talking about, it isn’t shocking that The New York Times is joining the Obama Administration in attempting to silence these non-profits.  While the Times suggests all exempt organizations should be treated equally, the regulations they endorse conveniently leave liberal labor union leaders free to engage in whatever political activity they want.  Over the past few years, the IRS has systematically targeted conservative groups, threatened conservative donors with higher taxes and leaked confidential taxpayer information.  This has already had a chilling effect in the conservative community.  The last thing any newspaper should endorse is granting the IRS more power to suppress engagement in the democratic process and the exercise of First Amendment rights.

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February 20, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Wednesday, February 19, 2014

Death of Richard Jacobus

JacobusI am saddened to report that former Senior Litigation Counsel Richard Jacobus died on December 1, 2013 of complications from cancer:

Richard was a major force during his 10 year career at the Tax Division. He came here in 2000 as a Trial Attorney in the Civil Trial Section, Eastern Region, where he had also worked as a Summer Law Intern. Immediately prior to joining the Tax Division, he worked as a law clerk to the Honorable Reginald Gibson of the United States Court of Federal Claims. Just six years after joining the Tax Division, Richard was named a Senior Litigation Counsel. He handled many notable cases, most of which resulted in victories, and he achieved savings to the United States Treasury totaling hundreds of millions of dollars. ...

But Richard's courthouse accomplishments do not do him justice. Richard was kind and generous with his colleagues. A prodigious writer, Richard could produce beautifully written, thoroughly researched, persuasive briefs or letters in almost no time at all. Indeed, he often did so on a Blackberry while attending a deposition. Even after Richard left the Division for the Public Company Accounting Oversight Board in 2009, his heart remained with the Tax Division. He wrote numerous articles for Tax Notes and other publications countering views offered by the private tax bar. And he maintained at his own expense a PACER account so he could keep up on briefs filed for and against the Tax Division and provide advice and support to his former colleagues. Indeed, in at least one case, Richard had read the opponent's brief and suggested the necessary reply arguments before the trial attorney had even seen the other side's brief.

Prior to obtaining his law degree from George Mason School of Law in 1997, Richard worked as a Certified Public Accountant. He obtained his accounting degree from University of Houston in 1985, and began his career at what was then known as the Big Five accounting firm of Arthur Young & Company. Richard had only recently retired in the spring of this year.

Although I never met Richard, he was a loyal reader and friend of TaxProf Blog who sent me dozens of tips each year.  (Hat Tip: David Weisbach.)

February 19, 2014 in IRS News, Obituaries, Tax | Permalink | Comments (2)

The IRS Is at a Tipping Point: Under Attack, Distrusted, and Underfunded

IRS Logo 2Boston Globe, IRS is America’s Feared and Failing Agency: As Demands Set to Rise, Flaws Evident:

Week after week, Republicans on Capitol Hill have ratcheted up their drumbeat of discontent with the Internal Revenue Service, alleging that it targeted conservative groups and can’t be trusted. Six investigations are underway, ensuring the matter will drag on for months or years.

But there is a bigger question about America’s least-loved federal agency that barely gets asked: Is the IRS, which collects 90 percent of the nation’s revenue, up to the basics of its job? The surprising answer is that it often is not.

A Globe review of dozens of government reports and audits, as well as interviews with key officials, found a series of fundamental problems:

  • The IRS makes billions of dollars in potentially fraudulent payments because it lacks the ability to check whether many returns are accurate before refunds are mailed.
  • The IRS relies on tax preparers to file accurate returns on behalf of taxpayers. But many preparers are not required to receive training and can be declared a tax professional by paying a $64.25 fee to the IRS. A federal court on Tuesday rejected the agency’s effort to license such preparers.
  • The IRS is increasingly impenetrable to taxpayers with questions and complaints. The agency is so short-staffed it cannot answer nearly 40 percent of phone calls, and it has failed to meet its own 45-day deadline to respond to millions of letters per year from taxpayers. The same dismal rate is likely to be repeated this year, according to the agency.
  • The decision by Congress to cut the agency’s budget over the past four years by more than $1 billion, designed to save money, has had the reverse effect. The loss of about 10,000 employees, more than 9 percent of the workforce, has shrunk collections by $8 billion. In other words, the budget cut increased the deficit.

Globe 2

All of this helps explain why, in a strikingly harsh but little-noticed assessment of the IRS’s own office of the national taxpayer advocate, the agency was declared last June to be “an institution in crisis.” That was followed by the office’s January report to Congress that upped the sense of urgency, warning that unless changes are made soon, the IRS will “fail at its mission.”

Yet that mission is about to become even more complicated. Starting in the next tax year, the agency will be responsible for implementing key parts of the new health care law, requiring the biggest changes to the tax code in decades. ...

The story of the IRS today is one of a powerful entity at a tipping point — under attack, distrusted, and underfunded, yet crucial to the nation’s survival and prosperity.

February 19, 2014 in IRS News, Tax | Permalink | Comments (19)

The IRS Scandal, Day 286

IRS Logo 2Chicago Tribune editorial:  The IRS Targets Political Speech Again:

The Internal Revenue Service is used to being universally disliked every April 15. But this year, the widespread denunciations have started early, and for good reason.

In November, the agency issued proposed new rules that are supposed to keep social welfare organizations from abusing their legal privileges by engaging in excessive electioneering. The effort came in response to complaints from Democrats about a 2012 surge in political spending by such tax-exempt groups, by the conservative Koch brothers and others to influence elections.

The IRS wants to curb such efforts, and it doesn't display much concern about the likely effect on free speech. But groups that engage in political advocacy, including the nonpartisan kind, are genuinely alarmed. ...

The agency does not get, or deserve, the benefit of the doubt in this realm — if only because it got caught targeting certain conservative organizations. In considering requests for tax-exempt status, it singled out groups with the term "tea party" or "patriot" in their names for extra scrutiny.

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February 19, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Tuesday, February 18, 2014

TIGTA: 39% of IRS Employee Long-Term Travel May Not Comply With Tax Rules

TIGTA The Treasury Inspector General for Tax Administration today released Internal Revenue Service’s Executive Long-Term Taxable Travel (2014-IE-016):

Per the Internal Revenue Code [§ 162(a)(2)] and the Revenue Ruling 93-86, an employee who performs a temporary duty travel assignment exceeding one year at a single or principal location is subject to income taxation of his/her travel expense reimbursements. Compensation for services (including fees, commissions, fringe benefits, and similar items) are includible in gross income. Similarly, remuneration for services paid by the employer to an employee are wages subject to employment taxes, which generally include income tax withholding and the Federal Insurance Contributions Act taxes.

In Fiscal Year (FY) 2011 and FY 2012, there were 351 and 373 executives in the IRS, respectively. In FY 2011, the IRS executives received approximately $4.8 million in travel reimbursements. In FY 2012, executive travel reimbursements decreased to about $4.7 million. We analyzed travel information from the GovTrip and the Integrated Financial System for IRS executives to determine whether executive travel appeared to be long term and met the criteria of long-term taxable travel (LTTT) status. ...

We reviewed the travel records for 31 executives, less than 10 percent of the IRS executives employed, to determine whether their travel appeared to be properly classified as taxable or nontaxable. We found that the tax classification of travel for nine executives appeared to be incorrect based on their travel patterns and the IRS’s validation, and for three executives, the classification was not made in a timely manner as required by Internal Revenue Manual 1.32.11.9, Taxable Travel Reimbursement. Consequently, not all executives who were in a LTTT status were correctly and/or timely classified as such; therefore, the IRS did not withhold the appropriate amount of taxes on the travel reimbursements paid to some executives.

Without an effective periodic assessment and management review of the executives’ travel activities, the IRS cannot verify that its executives’ travel expenses are properly classified as LTTT when they should be. The inaccurate reporting of the LTTT resulted in the executives’ potentially underreporting income, Federal, State, Medicare, and Federal Insurance Contributions Act taxes.

February 18, 2014 in IRS News, Tax | Permalink | Comments (2)

Five Year Old's Letter to the IRS: 'It's OK If You Talk With My Mommy About My Taxes'

ViralNova, The IRS Sent This FIVE YEAR OLD BOY A Letter About His Taxes. His Response Is Classic. LOLOL:

They say taxes are a certainty of life, although that isn’t true for most 5 year-olds. However, there’s one little boy who must file an individual tax return for a variety of reasons. So when he received a letter from the IRS questioning several items on his most recent return, his mother naturally responded for him. She received this in return (regarding her 5 year-old son):

“Dear Mr. Smith: we don’t recognize Susan F. Smith as someone authorized to discuss your tax file. If you want Susan F. Smith to be authorized to discuss your return we suggest you go online and submit form 8892 and form, etc.” Since the government already had the little boy’s Social Security Number and knew he was a minor, his parents were perplexed. So, they naturally decided that he should write the IRS himself. This is his letter.

tax letter

(Hat Tip: Tom Bruce.)

February 18, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 285

IRS Logo 2Orange County Register editorial:  New IRS Threat to Political Expression:

The Internal Revenue Service wants to set tougher standards for how much political activity is too much political activity. If you’re like us, that sentence sends chills up your spine.

While the IRS has never been an institution that has commanded outsized admiration from Americans, the agency must be regarded with elevated suspicion in light of last year’s revelations that it was going out of its way to delay or prevent conservative groups from earning tax-exempt 501(c)(4) status under the tax code. House Ways and Means Committee Chairman Dave Camp, R-Mich., revealed last week that the scandal went deeper than we previously knew, with the IRS also conducting surveillance on existing 501(c)(4)s, the targets overwhelmingly (83 percent) consisting of right-leaning groups.

t’s against this backdrop that the agency is currently proposing new rules limiting the political activity that may be engaged in by “social welfare” organizations, the term of art used to describe 501(c)4 groups. Those rules would classify activity such as voter registration drives, the preparation of voter guides and get-out-the-vote efforts as “candidate-related political activity,” even if it is nonpartisan and doesn’t advocate for the election of any specific individual. Organizations that engage in too much of that behavior (and the IRS has yet to define how much is too much) would be at risk of losing their nonprofit status ....

It’s true that the confluence of money and politics can prove dangerous, but the greater danger surely stems from empowering those who govern to restrict the manner in which those who are governed can express their political viewpoints. That’s the reason that liberal and conservative groups alike are opposed to the proposed IRS rules. A free people deserve the right to voice their political opinions without state interference – a task made immensely more difficult by the IRS’ new proposal. For that reason, the proposed rules deserve to be abandoned with haste.

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February 18, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Monday, February 17, 2014

IRS Releases Transfer Pricing Audit Roadmap

Trasnfer PricingThe IRS on Friday released Transfer Pricing Audit Roadmap:

In recognition of the strategic importance of transfer pricing, LB&I has established a dedicated team of transfer pricing specialists (Transfer Pricing Operations or TPO) headed by an executive and encompassing both the Advance Pricing and Mutual Agreement Program (APMA) and the Transfer Pricing Practice (TPP). This team has developed this Transfer Pricing Audit Roadmap (Roadmap) to provide the transfer pricing practitioner, whether employed in TPO or International Business Compliance (IBC), with audit techniques and tools to assist with the planning, execution and resolution of transfer pricing examinations.

The Roadmap is a practical, user-friendly toolkit that is organized around a basic audit time-line and that provides advice and links to useful reference material. It is not intended as a template – every transfer pricing case is unique, and the team will need to exercise its own judgment about how to best use these guidelines. The Roadmap is a “work in process” – users are strongly encouraged to contact the Income Shifting Issue Practice Networks (IPN) with any corrections, proposed additions or deletions, or other suggestions for improvement.

The following paragraphs summarize some of the key themes that run through the Roadmap and that should be kept in mind by the exam team in any transfer pricing case.

February 17, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 284

IRS Logo 2Legal Insurrection:  They’re From the IRS, and They’re Here to Help, by Neo-neocon:

At this point it’s tempting to regard the IRS as not-so-secret agents of the Obama administration and the Democrats. This is not paranoia. As Ed Rogers wrote in the WaPo, it is fact: 

Encouraged by the lack of a public backlash, an uninquisitive press, cover from the White House and an eager-to-please bureaucracy, the Democrats are boldly counting on the IRS to be their political and policy enforcer.This statement isn’t an overreach by the “vast right-wing conspiracy” or a phony crisis created by hecklers (like me) on the right — it goes back to the early stages of President Obama’s reelection campaign.

Rogers goes on to list some of the more egregious examples of what has occurred and how the administration has been emboldened by the fact that so far there have been few negative consequences to them for their actions.

The hue and cry that might have been expected – and to a certain extent came at first, when some of the revelations about Tea Party harassment were revealed – has been muted and blunted. So now the excesses are being further and more openly institutionalized. ...

I wonder, though, how much the IRS scandal has affected Obama’s and the Democrats’ ratings with the public. I can’t find any polls about the subject since last summer, but my guess is that it has had some part in the downturn. I certainly hope so; all Americans of any political stripe should be highly alarmed, although of course that isn’t happening. One of the most pernicious reasons is ignorance of history; some people say, “Oh, all administrations do this.”

No, they don’t – at least, not really like this in terms of extent and success. Nixon was excoriated for expressing a desire to do it in the Nixon tapes, and the assumption has been that he did do it. But in fact for the most part he failed at it. Why? Because the heads of the IRS at the time would not cooperate (see this for a background discussion).

Here’s a very short history of the efforts of other presidents. You can see that, except for the Nixon example, it seems that most of the presidents who were involved with any small success in such undertakings were Democrats. That’s no accident because, as “Nixon henchman Jack Caulfield astutely complained,…the IRS was a ‘monstrous bureaucracy…dominated and controlled by Democrats.’”

So Nixon is convicted in the eyes of the public for what appears to have been largely thought crime, whereas the Obama administration and its handmaidens such as Lois Lerner get off seemingly free (so far) for the actual crime. Obama’s much greater success compared to earlier efforts appears to be due to several factors: greater drive, boldness, and scope; public ignorance/apathy; the coverup attempts by much of the MSM; and the simpatico political persuasion of much of the IRS.

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February 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Sunday, February 16, 2014

The IRS Scandal, Day 283

IRS Logo 2New York Post editorial:  Calling Lois Lerner:

The American people still need to hear from Lois Lerner. That’s a point that can’t be made often enough.

Remember her? She’s the IRS official who gave a statement before Congress declaring herself innocent of any wrongdoing — and then promptly took the Fifth.

Recently, Congress unearthed another IRS e-mail on which she was copied, talking about taking “off-plan” a discussion about how to harass the 501(c)(4) groups the IRS had targeted. Meanwhile, leaks from officials involved in the investigation claim the FBI has not found ­anything criminal.

That’s an amazing finding, given the statement by the American Center for Law and Justice, which represents the IRS targets, that the FBI hadn’t interviewed a single of the center’s 41 ­clients. ...

[W]e hope Congress is making clear that whatever happens with the Justice investigations, the American people need to get Lois Lerner back on that stand to answer questions under oath.

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February 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (6)

Saturday, February 15, 2014

The IRS Scandal, Day 282

IRS Logo 2

Washington Post:  The IRS, the Democrats’ Cat’s Paw, by Ed Rogers:

Encouraged by the lack of a public backlash, an uninquisitive press, cover from the White House and an eager-to-please bureaucracy, the Democrats are boldly counting on the IRS to be their political and policy enforcer.This statement isn’t an overreach by the “vast right-wing conspiracy” or a phony crisis created by hecklers (like me) on the right — it goes back to the early stages of President Obama’s reelection campaign. Remember the case of Romney supporter Frank Vandersloot? Before the 2012 campaign, he was publicly accused of having a “less-than-reputable record” by Team Obama and then found himself the target of IRS and Department of Labor audits. This was just one example of an individual who was persecuted because of his donation to a pro-Romney super PAC, but it served as a sufficient warning and no doubt had a chilling effect on others who were inclined to support the Republican nominee for president in 2012. And we now know that while this was going on, the IRS was actively suppressing conservative organizations seeking tax-exempt status because they opposed the president and the Democrats’ policy positions.

Lois Lerner, the government official at the center of the IRS scandal, took the fifth amendment in a high-profile congressional hearing, then quietly retired from the agencywith a taxpayer-funded pension. She hasn’t been heard from since. The Obama administration has gone into overdrive since the scandal broke to avoid any accountability, with the president famously telling Bill O’Reilly of Fox News only a few weeks ago that there was “not even a smidgen of corruption” in the IRS targeting of conservative groups. Comically, this is still an active and ongoing investigation by the Obama Department of Justice, so you would think the president wouldn’t be able to come to that conclusion quite yet. Of course, no one in the administration can comment on an active and ongoing investigation, so it is the perfect cover for self-preservation and is reassuring to those doing the Democrats’ bidding in the IRS and elsewhere.  Let’s also remember that the Justice Department’s farce of an investigation into the IRS targeting scandal is now being led by trial lawyer and Obama donor Barbara Bosserman. It’s so brazen, I almost admire their audaciousness. In politics, gall pays off.

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February 15, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Friday, February 14, 2014

The IRS Scandal, Day 281